In the recent Court of Appeal decision of Ontario Securities Commission v. Camerlengo Holdings Inc., 2023 ONCA 93, the Court of Appeal overturned a motion judges decision to strike the Ontario Securities Commission’s (“OSC”) claim made pursuant to s.2 of the Fraudulent Conveyance Act, R.S.O. 1990, c. F. 19 (“FCA”) due to lack of particularity. The Court of Appeal held that it is not necessary for a creditor to be known to the debtor at the time of a potentially fraudulent conveyance, it is enough that the debtor perceived a risk of claims from a general class of future creditors and conveyed the property with the intention to evade such creditors if they arose.
The Facts
Fred Camerlengo a retired electrician and the sole director of the Defendant corporation, Camerlengo Holdings Inc. (Holdco), conveyed his interest in the family home to his wife Mirella Camerlengo, a retired teacher, which was previously owned in joint tenancy, for no consideration, in 1996.
The OSC’s statement of claim (the Fraudulent Conveyance Claim) alleges that Fred carried on his electrical contracting business using various corporations. As per the Fraudulent Conveyance Claim, at the time of the property transfer Fred was concerned about potential exposure to personal liability resulting from the business. The OSC alleges that the transfer was made with the intent of defeating Fred’s existing and future creditors.
By 2011, Fred was facing financial difficulties and it subsequently came to light that his business associate had defrauded many of his clients – including the Camerlengos, through a fraudulent investment scheme. Holdco owed a $200,000 debt to an entity, Bluestream International Investments Inc. (Bluestream), which was implicated in the fraudulent scheme. The OSC obtained a garnishment order against Holdco to recover the $200,000 debt owed to Bluestream and then brought the Fraudulent Conveyance Claim seeking to impose a constructive and resulting trust on those funds and set aside the transfer of Fred’s interest in the residential property to Mirella, as well as various payments made by Holdco to Fred and Mirella, as fraudulent conveyances.
The Lower Court Ruling
The learned motion judge dismissed the motion, except with respect to the claim of fraudulent conveyance, in considering the wording of s.2 of the FCA, the learned motion judge concluded that Bluestream and the OSC did not come within the class of persons contemplated by this section as they were not “creditors or others” at the time of the transfer of the family home in 1996.
Relying on Wilfert v. McCallum, 2017 ONCA 895, 54 C.B.R. (6th) 249, the motion judge concluded that a fraudulent conveyance must contain particulars such as the names of the creditors at the time of the transfer or of an impending risky financial venture.
The Court of Appeal Ruling
The Court of Appeal overturned the lower court ruling, holding that the case law interpreting s. 2 of the FCA is clear that a subsequent creditor (who is not a creditor at the time of the transfer) can attack a transfer if the transfer was made with the intention to “defraud creditors generally, whether present or future” citing IAMGOLD Ltd. v. Rosenfeld [1998] O.J. No. 4690, at para 11 and McGuire v. Ottawa Wine Vaults Co. (1913), 48 S.C.R. 44.
The Court of Appeal went on to hold that: “An intent to defraud creditors generally can be made manifest by taking steps to judgment proof oneself in anticipation of starting a new business venture. To plead a fraudulent conveyance on this basis, it is not necessary that a claimant be able to identify a particular, ascertainable creditor that the debtor sought to defeat at the time of the conveyance. It is enough, on the case law, to plead facts that support the allegation that at the time of the conveyance the settlor perceived a risk of claims from a general class of future creditors and conveyed the property with the intention of defeating such creditors should they arise.”
The Court of Appeal found that the OSC had plead sufficient badges of fraud to support an inference of an intention to defraud future creditors for the Fraudulent Conveyance Claim to continue, whether the badges are sufficient to establish fraudulent intent is a matter for trial and not appropriate for consideration on a pleadings motion.
The Court of Appeal reiterated that on a motion to strike brought pursuant to rule 21 of the Rules of Civil Procedure, “a pleading will only be struck of the claim is certain to fail because it contains a radical defect. A claim must be permitted to proceed to trial if there is even a faint chance of success” citing Lad v. Marcos, 2020 ONSC 6215 at para 40.
The case reinforces the policy rational that grants a wide latitude to plaintiff’s who are pursuing fraud claims, and the contrasting narrow parameters within which a pleading ought to be struck on the basis that it contains no reasonable cause of action.
The lawyers at Gilbertson Davis LLP have experience with fraud litigation and other types of litigation which can involve fraudulent misrepresentation. Please contact us for an initial consultation.
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